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UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 99-60453
EL PASO ELECTRIC COMPANY,
Petitioner,
VERSUS
FEDERAL ENERGY REGULATORY COMMISSION
and UNITED STATES OF AMERICA,
Respondents.
Petition for Review of Orders
of the Federal Energy Regulatory Commission
February 9, 2000
Before DUHÉ, BARKSDALE, and DENNIS, Circuit Judges.
DUHÉ, Circuit Judge:
Petitioner El Paso Electric Company ("EPE") seeks review of
two orders of the Federal Energy Regulatory Commission ("FERC"):
one requiring EPE to sell power at wholesale to the City of Las
Cruces, New Mexico, 86 FERC ś 61,065 (1999) (the "Order"); the
other denying EPE's motion for rehearing and dismissing its motion
for stay as moot, 87 FERC ś 61,220 (1999) (the "Rehearing Order").
For the reasons stated herein, we AFFIRM in part and REVERSE in
part both orders and REMAND for further proceedings consistent with
this opinion.

BACKGROUND
EPE is an integrated public utility that generates, transmits,
and sells electricity at retail and wholesale in west Texas and
south central New Mexico. EPE owns and operates integrated
generating plants, transmission lines, and distribution systems
serving approximately 30,000 customers in Las Cruces, 30,000 other
New Mexican customers, and 210,000 customers in west Texas.
The City of Las Cruces, New Mexico (the "City"), a municipal
corporation organized under the laws of New Mexico, is a municipal
utility that owns electric distribution facilities in an industrial
park on the outskirts of Las Cruces. The City sells power to
approximately thirty customers in the industrial park. Many of
these customers are subdivisions of the City.
The City plans to supplant EPE as the retail provider of
electricity to the 30,000 EPE customers in Las Cruces. The City
insists that this change in service will benefit its citizens by
lowering costs and providing more reliable service than that
offered by EPE. To this end, the City initiated condemnation
proceedings to obtain immediate possession of EPE's local
distribution system.1 The City intends to sever these facilities
from EPE's interconnected system.
In order to proceed with its planned condemnation, the City
1The voters of Las Cruces approved the City's plan to initiate
condemnation proceedings by a two to one margin in an August 1994
vote.
2

must demonstrate that it has a firm source of power. As the City
does not own or operate the requisite facilities, it must seek this
firm source of power from outside providers.
The City has attempted to secure a firm source of power in two
ways. First, it contracted with Southwestern Public Service Co.
("SPS") to purchase power and attempted to have EPE transmit the
electricity to Las Cruces across EPE's Eddy County Tie.2 EPE
refused to transmit the power, citing load concerns. SPS filed a
complaint with FERC requesting that the agency order EPE to provide
transmission services pursuant to EPE's open-access transmission
tariff. See Order, 86 FERC at ś 61,250. At the time of this
writing, FERC has received recalculated compliance filings from EPE
in this matter and has not ruled on SPS's complaint.
In its second attempt to secure a firm source of power, the
City filed a complaint under Section 202(b) of the Federal Power
Act (the "Act"), 18 U.S.C. § 824a(b), requesting that FERC issue a
temporary order requiring EPE to sell wholesale power to the City.
Without holding an evidentiary hearing, a divided FERC issued a
summary order granting the City's request. See Order, 86 FERC at
ś 61,254. A similarly divided FERC summarily denied EPE's
subsequent motion for rehearing. See Rehearing Order, 87 FERC at
ś 61,874. EPE appeals these decisions asserting that the Order
exceeds FERC's authority under the Act and that FERC failed to
2The Eddy County Tie is an EPE-owned high-voltage direct
interconnection between SPS's and EPE's respective systems.
3

consider certain genuine issues of material fact regarding the
effects of the Order.
DISCUSSION
I. FERC's Section 202(b) Authority
Section 202(b) of the Federal Power Act provides:
Whenever the Commission, upon application . .
. of any person engaged in the transmission or
sale of electric energy, . . . , finds such
action necessary or appropriate in the public
interest it may by order direct a public
utility (if the Commission finds that no undue
burden will be placed upon such public utility
thereby) to establish physical connection of
its
transmission
facilities with the
facilities of one or more other persons
engaged in the transmission or sale of
electric energy, to sell energy to or exchange
energy with such persons: Provided, That the
Commission shall have no authority to compel
the enlargement of generating facilities for
such purposes, nor to compel such public
utility to sell or exchange energy when to do
so would impair its ability to render adequate
service to its customers.
16 U.S.C. § 824a(b) (emphasis in original). EPE argues that FERC
exceeded its authority under the statute because the City is not
"engaged in the transmission or sale of electric energy" and
because the Act does not grant to FERC the same "public interest"
authority to order sales of electricity as it does to order
interconnection of electric facilities. We disagree.
To decide whether or not FERC had the statutory authority to
issue the Order, we must review the agency's interpretations under
the Chevron doctrine. See Chevron U.S.A., Inc. v. Natural
4

Resources Defense Council, Inc., 467 U.S. 837, 104 S.Ct. 2778, 81
L.Ed.2d 694 (1984), Texas Office of Public Util. Counsel v. Federal
Communications Comm'n, 183 F.3d 393, 409 (5th Cir. 1999). Key to
this inquiry is determining whether or not the statute is
ambiguously worded. If "Congress has directly spoken to the
precise question at issue," we must "give effect to the
unambiguously expressed intent of Congress." Chevron, 467 U.S. at
842-43. We may reverse an agency's interpretation of an
unambiguous statute only if it does not conform to the plain
meaning of the statute. See Public Util. Counsel, 183 F.3d at 409.
If, however, the statute is ambiguous or silent, "the question for
the court is whether the agency's answer is based on a permissible
construction of the statute." Chevron, 467 U.S. at 843. Thus, we
may reverse an agency's construction of an ambiguous or silent
statute only if we find it to be "arbitrary, capricious, or
manifestly contrary to the statute." Id. at 844.
EPE reasons that because the City is not currently providing
power to the inhabitants of Las Cruces, the City is not engaged in
the transmission or sale of electric energy as required by the Act.
To this end, EPE relies heavily upon Niagara Mohawk Power Corp. &
Town of Massena, New York, 56 F.P.C. 666 (1976), in which FERC's
predecessor, the Federal Power Commission, ruled that Section
202(b) requires that a prospective purchaser of power under the
Section be "currently engaged in the transmission or sale of
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electric energy." See id. at 667 (emphasis added). From this
interpretation EPE extrapolates that a party seeking an order under
Section 202(b) must be currently engaged in the transmission or
sale of electric energy within the precise geographic area that it
seeks to serve under the order. We do not read the statute to
impose such a geographic limitation, nor has FERC previously
interpreted the statute to impose such a limitation. Accordingly,
FERC's refusal to read such a requirement into Section 202(b) is
consistent with the unambiguous wording of the statute and passes
Chevron scrutiny.
The plain language of the statute indicates that "any person
engaged in the transmission or sale of electric energy" may seek an
order under its provisions. See City of Paris, Kentucky v. Federal
Power Comm'n, 399 F.2d 983, 984 (D.C. Cir. 1968) ("It is clear that
under [Section 202(b)] the Commission can order a public utility to
sell its energy to, or exchange its energy with, any person engaged
in transmission or sale of electric energy."). The City is
currently transmitting and selling power to industrial customers
outside of Las Cruces. Accordingly, the City is eligible to seek
a sale order under section 202(b).
EPE next argues that FERC's authority to act "in the public
interest" in issuing orders under section 202(b) is limited
strictly to orders mandating interconnection of facilities and does
not apply to orders requiring sales of electricity. Again, looking
to the plain language of the statute we see no such limitation upon
6

FERC's authority. The language in question permits FERC to act in
the public interest "to establish physical connection of its
transmission facilities with the facilities of one or more other
persons engaged in the transmission or sale of electric energy, to
sell energy to or exchange energy with such persons." 16 U.S.C. §
824a(b). As the First Circuit indicated in New England Power Co. v.
Federal Power Comm'n, 349 F.2d 258 (1st Cir. 1965):
The plain language of [Section 202(b)] is in
the disjunctive, and we think it must be read
as empowering the Commission to direct a
public utility to establish a physical
connection of its transmission facilities with
the facilities of another entity engaged in
the transmission or sale of electric energy,
or to order the utility to sell energy to or
exchange energy with such other entity, or to
do both, as the public interest requires.
Id. at 263. EPE's involved recitation of the Act's legislative
history does nothing to alter the disjunctive wording of Congress'
final version of the section. The unambiguous wording of section
202(b) permits FERC to order interconnection and/or the sale or
exchange of energy between qualified entities as long as to do so
is in the public interest and does not run afoul of any of the
other prohibitions enumerated in the section. Accordingly, FERC's
ruling to this effect passes Chevron scrutiny.
As both of FERC's statutory interpretations addressed above
pass Chevron muster, we AFFIRM both contested orders to the extent
that they are consistent with this holding.
II. FERC's Consideration of EPE's Evidence
7

Although the Act authorizes FERC to order EPE to sell power to
the City if doing so is in the public interest, we believe that
FERC improperly refused to take into consideration evidence that
the potential condemnation might impair EPE's ability to serve its
other customers. During FERC's summary proceedings, EPE submitted
evidence indicating that the City's planned condemnation and
severance could impair EPE's ability to render adequate service to
its customers outside of Las Cruces and could impose an undue
burden upon EPE. In the Order, FERC reasoned that EPE's evidence
concerning potential adverse effects of condemnation was not
relevant insofar as the proper forum for addressing such concerns
is the condemnation proceeding. See Order, 86 FERC ś 61,253. In
denying EPE's motion for rehearing, FERC reiterated its irrelevance
argument. See Rehearing Order, 87 FERC at ś 61,874. We believe
that this failure to address adequately EPE's reliability concerns
was arbitrary and capricious.
Even if an agency's interpretation meets Chevron muster, the
Administrative Procedure Act (the "APA") authorizes us to reverse
an agency's actions if it "acted arbitrarily or capriciously in
adopting its interpretation by failing to give a reasonable
explanation for how it reached its decision." Public Util.
Counsel, 183 F.3d at 410 (citations omitted). This includes a
determination of "'whether each of the order's essential elements
is supported by substantial evidence', and whether the agency
'abused or exceeded its authority.'" Gulf States Util. Co. v.
8

Federal Energy Regulatory Comm'n, 1 F.3d 288, 291 (5th Cir. 1993)
quoting In re Permian Basin Area Rate Cases, 390 U.S. 747, 790,
792, 88 S.Ct. 1344, 20 L.Ed.2d 312 (1968). Moreover, this inquiry
requires us to evaluate whether or not the agency has given
"reasoned consideration" to the evidence before it. See Gulf
States, 1 F.3d at 291 quoting Borden, Inc. v. Federal Energy
Regulatory Comm'n, 855 F.2d 254, 258, 259 (5th Cir. 1988).
In the Order, FERC listed three reasons why granting the
City's request was in the public interest: "[EPE] will be fully and
fairly compensated, there will be no undue burden on [EPE] or
impairment of its ability to provide adequate service to its other
customers, and the service we are ordering is only temporary to
allow Las Cruces to complete its extensive efforts . . . to arrange
an alternative source of supply." Order, 86 FERC at ś 61,253. In
the Rehearing Order, FERC added that the City's ultimate objective
of reducing the cost of electricity for its citizens when balanced
against the adequate compensation afforded to EPE yields a fourth
reason why this sale is in the public interest. See Rehearing
Order, 87 FERC at 61,874. Indeed, FERC goes so far as to say that
these potential cost savings are in the public interest regardless
whether subsequent developments may prevent the achievement of this
objective. See id.
For FERC to insist that considering the potential
disadvantages of condemnation is premature while at the same time
citing to the potential advantages of condemnation is hardly
9

"reasoned consideration" of the evidence before it. FERC's
insistence that there will be no undue burden on EPE or impairment
of its services to other customers rests on its assertion that
these effects would occur, if at all, only as a result of the City
leaving EPE's power supply system altogether. According to FERC,
because the Order does not immediately result in such severance it
does not pose a risk to EPE's ability to serve its customers. Such
purposeful naivete does a grave disservice to EPE. The City has
been clear in noting its intention to condemn EPE's facilities in
Las Cruces and sever them from the remainder of EPE's system. The
Order acknowledges that this is the City's objective. See Order,
86 FERC at ś 61,252. Condemnation and severance are likely results
of the Order making the potential impact of these proceedings quite
relevant to FERC's determination.
The City is seeking a firm source of power for no other reason
than to proceed with its condemnation of EPE's distribution
facilities. To categorize facilitating the condemnation as being
"in the public interest" necessarily implies that the condemnation
is in the public interest. Moreover, the City's objective of
reducing the costs of its citizens' power is inextricably linked to
the results of the condemnation proceeding. The City cannot
distribute the purchased energy without condemning EPE's
distribution network. Thus FERC bases its decision upon a result
that could come about only through condemnation. We cannot allow
FERC to rely on the potential advantages of condemnation to bolster
10

its public interest findings while ignoring the potential
disadvantages of the same proceedings.
At the very least, EPE's evidence concerning the effects of
condemnation and severance could create a genuine issue of material
fact concerning whether or not the Order is in the public interest
and/or otherwise inconsistent with section 202(b). Under FERC's
rules this would require more than the summary proceedings FERC
engaged in here. See 18 C.F.R. § 385.217(b). FERC's refusal to
consider EPE's evidence on this matter leaves the question open as
to the existence of an issue of material fact warranting an
evidentiary hearing. As we are not charged with determining what
constitutes a issue of material fact in this context, we leave it
to FERC to decide whether or not a hearing is appropriate based
upon the parties' submissions.
Ultimately, FERC's arbitrary refusal to evaluate relevant
evidence concerning potential reliability problems resulting from
the City's proposed condemnation of EPE's distribution facilities
violates both the APA and possibly FERC's own procedural rules.
Accordingly, we REVERSE both orders to the extent that they are
inconsistent with this opinion and REMAND for further proceedings
consistent with this opinion.
AFFIRMED in part, REVERSED in part, and REMANDED.
11